EU keeps low profile in U.S.-China currency row (3)

16:40, April 05, 2010      

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"Europeans at the same time do not want to see China diversify into the euro, which could have major implications for the euro-dollar exchange rate and would send a signal that the euro was on a fast appreciation track. All that is very delicate, but I think the good way of approaching it is to develop the discussion on the medium term and then to manage the transition," he said.

Meanwhile, the EU's lack of institutional link between currency and trade issues may be another reason for the 27-nation bloc being less vocal on the appreciation of yuan than the United States.

"In Europe we have a more separated decision-making system," Pisani-Ferry said. "We have exchange rate issues that are the responsibility of the ECB (European Central Bank) and the ministers of finance, and we have trade responsibility of the European Commission. There is no institutional link between the two, while in the U.S, the Congress can actually create the link between exchange rate and trade policy."

In addition, the EU is overall in a trade balance, despite its large deficits with China, which makes it less obsessed with the appreciation of yuan than Washington, which has run high deficits in trade with others for years, analysts said.

"In the U.S., it is easy to say we have a deficit, and then look at who is responsible for the deficit. China comes for a large part of it. In Europe there is no concern about deficits in general," Pisani-Ferry said.

Currently, the Greek debt crisis in effect brought about a by-product, i.e. causing the euro fall by about 10 percent against the dollar since November and shed about 8 percent versus the yuan since this year. This has already allowed European exporters feel quite comfortable, so there is no urgent need for any further abrupt move of the yuan.

Pisani-Ferry said dialogue, instead of threatening with sanctions, should be a better way to approach China on the currency issue.

"I am worried by the tone of the discussion. There is a risk of escalating into an exchange rate and trade conflict and that would clearly be dangerous," he said.

"The problem is how to manage the transition. It is not about where it is going, but about how to manage the transition. That would be a scope for dialogue and discussion among the three major currency areas," he added.

Source: Xinhua

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